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Right Forecast, Wrong Trade

[Peter Shiff] has been wrong on significant parts of his argument. Many detractors point out that two of his core beliefs—a longstanding prediction that the dollar would collapse and that foreign stocks would outperform U.S. shares—have been well off the mark in this crisis. A rush into the safety of the greenback sent the dollar soaring against other currencies and, as a side effect, helped undermine shares of stocks around the world.

Mr. Schiff acknowledges that he wasn’t expecting that to happen. But he says his worries aren’t misplaced: A dollar dive and foreign-stock outperformance are still in the cards.

Sure, I’d love some more. Especially any forecasts relating to the US economy and the US housing market during the 2005-2007 period :)

BTW, are you still on the high-side of forecasts for the Australian economy in 2009? IMO, we still seem to be in the denial phase where the <a ref=“http://www.econbrowser.com/archives/2009/01/trade_finance_i.html”>rapid downturn in China</a> hasn’t hit home yet. Consumers who feel secure about future employment are spending the windfall from lower interest rates, lower petrol prices and Kev’s largesse.

Many businesses however, are already feeling the pinch—credit is still expensive and/or hard to come by, exporters are seeing sales slow markedly, and importers have higher costs due to the weaker AUD. Its only a matter of time until business starts shedding jobs.

Posted by .(JavaScript must be enabled to view this email address) on 01/05 at 08:09 AM

Sure, I’d love some more. Especially any forecasts relating to the US economy and the US housing market during the 2005-2007 period :)

BTW, are you still on the high-side of forecasts for the Australian economy in 2009? IMO, we still seem to be in the denial phase where the <a >rapid downturn in China</a> hasn’t hit home yet. Consumers who feel secure about future employment are spending the windfall from lower interest rates, lower petrol prices and Kev’s largesse.

Many businesses however, are already feeling the pinch—credit is still expensive and/or hard to come by, exporters are seeing sales slow markedly, and importers have higher costs due to the weaker AUD. Its only a matter of time until business starts shedding jobs.

P.S. A preview button would be nice to avoid double-posts such as this.

Posted by .(JavaScript must be enabled to view this email address) on 01/05 at 08:36 AM

John Hussman (not sure what you think of him), is arguing that either the USD will fall, or US Treasury bond prices will collapse:

Posted by .(JavaScript must be enabled to view this email address) on 01/05 at 10:33 AM

People forget that the USD exchange rate is a relative price, so a bearish case for the USD must be based on the view that the US will fare worse than elsewhere, rather than just in absolute terms. USD asset markets can still outperform even if doing badly in an absolute sense.

Key wholesale markets are frozen; the internationally active part of its financial system has either been nationalised or underwritten and guaranteed by the Federal government in other ways. Most market-mediated financial intermediation has ground to a halt, and the Fed is desperately trying to replace private markets and financial institutions to intermediate between households and non-financial operations.
...
The legal framework for the regulation of financial markets and institutions is a complete shambles. Even given the dismal state of the legal framework, the actual performance of key regulators like the Fed and the SEC has been appalling, with astonishing examples of incompetence and regulatory capture.

There is no chance that a nation as reputationally scarred and maimed as the US is today, could extract any true ‘alpha’ from foreign investors for the next 25 years or so. So the US will have to start to pay a normal market price for the net resources it borrows from abroad. It will therefore have to start to generate primary surpluses, on average, for the indefinite future. A nation with credibility as regards its commitment to meeting its obligations could afford to delay the onset of the period of pain. It could borrow more from abroad today, because foreign creditors and investors are confident that, in due course, the country would be willing and able to generate the (correspondingly larger) future primary external surpluses required to service its external obligations. I don’t believe the US has either the external credibility or the goodwill capital any longer to ask, Oliver Twist-like, for a little more leeway, a little more latitude. I believe that markets - both the private players and the large public players managing the foreign exchange reserves of the PRC, Hong Kong, Taiwan, Singapore, the Gulf states, Japan and other nations - will make this clear.

Posted by .(JavaScript must be enabled to view this email address) on 01/06 at 08:04 AM